WHY DID THE FASB ISSUE A NEW STANDARD ON NOT-FOR-PROFIT FINANCIAL REPORTING?

On August 18, 2016, the FASB issued a standard intended to simplify and improve how a not-for-profit organization classifies its net assets, as well as the information it presents in financial statements and notes about its liquidity, financial performance, and cash flows. 

The current not-for-profit financial reporting model has held up well for over 20 years since the issuance of Statement of Financial Accounting Standards No. 117, Financial Statements of Not-for-Profit Organizations, in 1993. However, stakeholders voiced concerns about:

• Complexities in the use of the required three classes of net assets
• Deficiencies in the transparency and utility of information in assessing an organization’s liquidity
• Inconsistencies in the type of information provided about expenses, and
• Misunderstandings about and the limited usefulness of the statement of cash flows, particularly with regards to the reporting of operating cash flows.

Based on these concerns, the FASB’s Not-for-Profit Advisory Committee and other stakeholders suggested that an update would be beneficial.
The FASB added a project to its agenda to improve the current net asset classification requirements and the information presented in financial statements and notes about a not-for-profit entity’s (NFP’s) liquidity, financial performance, and cash flows. 

Accounting for Spoilage

Accounting for Spoilage

Restaurant books account for overhead, such as the costs of paying employees, utility bills and purchasing food items. Gross profits are the amount of money a restaurant takes in, and net profits are the difference between the gross profits and all operating costs. Restaurants should track the value of all spoiled food every week or month, so the Internal Revenue Service doesn't suspect the business of underreporting profits at tax time. According to an IRS audit guide for restaurants, food spoilage rates above 8 percent may appear suspicious to auditors.

Preventing Spoilage and Waste

Given that too high a rate of spoilage can trigger a tax audit and interferes with profits, restaurants should do all they can to minimize loss due to spoilage. Foods closest to their date of expiration should be used first, make sure perishable items are properly refrigerated and reduce the amount of perishable items kept in stock. Restaurants can even get spoilage insurance to prevent a significant loss of profits.

IRS overreach checked!

Interesting facts about the IRS and its ability to interact with taxpayers-
 The IRS’s petition to enforce a summons was denied because the IRS issued the summons to an attorney in his personal capacity and he lawfully invoked his right against self-incrimination. Moreover, the foregone-conclusion exception did not apply because the attorney correctly asserted that the only way for the IRS to know that the underlying documents existed was if they were authenticated through his act of production.

Further, the government’s argument that enforcement of the summons would not violate judicial process because the summons was directed to the attorney as his S corporation’s records custodian was rejected. The IRS’s investigation was focused on the attorney’s individual personal income tax liability. In addition, the summons was directed on its fact to the attorney and was served to his wife at his personal residence. Therefore, the record did not support the government’s contention that the IRS directed the summons to the S corporation. Finally, the government presented no legal authority for the proposition that a single summons, issued to an individual who responded in his personal capacity, can somehow be interpreted as a second summons issued to a corporate entity for unspecified corporate records.  Thanks to CCH for the information in this article.